Let JC Reynolds Appraisals, Inc. help you figure out if you can eliminate your PMI

It's largely known that a 20% down payment is the standard when purchasing a home. Because the risk for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value variationsin the event a purchaser doesn't pay.

During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to handle the additional risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the worth of the home is lower than what is owed on the loan.

PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. It's profitable for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs all the deficits.

How homeowners can prevent bearing the expense of PMI

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen home owners can get off the hook beforehand. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.

It can take countless years to get to the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things simmered down, so even when nationwide trends forecast falling home values, you should understand that real estate is local.

The hardest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At JC Reynolds Appraisals, Inc., we're experts at analyzing value trends in Richardson, Collin County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will most often do away with the PMI with little effort. At which time, the homeowner can retain the savings from that point on.

Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year